The Biggest Problem With Money And How to Fix it.
One could also postpone retirement if they have not cleared themselves of debt, as it does not make any sense to carry the burden of debt into retirement. And usually, the size of the debt in these situations is unnecessarily large. The people most likely to fall victim to lifestyle creep fall into two categories:
1. The individuals approaching retirement. They are in their peak earning years and have probably paid off most, if not all the debt they had incurred in their earlier years. The temptation is to overspend. However, they also are almost about to retire and need to make sure that their finances are secure.
2. Young professionals who just started earning a sizable and regular income. They may get carried away with their newfound Financial Independence.
Now I am certainly not saying that people should remain in uncomfortable situations. Everyone is entitled to live with dignity and should seek to improve their quality of life. I am merely suggesting that with increased income; the priority should be to increase savings and investments before increasing spending.
One sure way one can reverse the effects of lifestyle creep or avoid it altogether is by having a Financial Plan. Do not make any financial decisions without having a financial plan. This plan should make it possible for you to hold onto more money than you spend. It should consider your financial goals, both the short- and long-term goals, and the strategy you have to attain them. Your financial plan needs to consider a couple of things for it to prove effective.
i. You must Pay yourself first. You can go about this by making additional contributions to your emergency and retirement fund before anything else. Increase these margins with every increase in income, instead of merely retaining the previous rates.
ii. Reward yourself wisely; some people call this creating a fun fund. Just like I had said before, I do not mean to suggest that you cannot spend on anything you enjoy. It is normal to want to treat yourself for all your hard work. The trick is to do it strategically. It is essential to give yourself some wiggle room and freedom within your budget, so you do not feel deprived. This will significantly curb the urge to binge.
iii. Automate your finances as much as you can. I know I have said this before, but I mention it again because it is easy to get cocky and decide that your willpower will be enough to keep you committed to your financial obligations.